Traffic pumping: threat to everyone? (or just AT&T)

If a small rural, telco offers chat and conference services to consumers, is …

Did you know that while decent, law-abiding citizens are minding their own business and making perfectly respectable phone calls to each other, a growing number of schemers are engaged in a sordid, porno-packed activity known as "traffic pumping"? Well, they are, says AT&T, and the telco wants to stop it.

Traffic pumping "is growing at an alarming rate," AT&T has been warning the Federal Communications Commission for months). "Indeed, the companies involved in these activities seem to have been emboldened by Commission inaction and are encouraging other companies to 'make hay while the suns shines' because they do not believe the FCC will move to address the problem in the foreseeable future."

Regular Ars readers may recall that this obscure form of telecom-based haymaking came to prominence when AT&T all but demanded that Google Voice be classified as a common carrier and forced to complete voice chat and conference calls to some rural areas, even if those completions might be expensive. AT&T is miffed that it has to finish those relatively pricey calls while Google Voice doesn't (because, in fact, GV isn't a common carrier; it's an application).

But just because AT&T lost that battle, doesn't mean that it's given up on the war. Quite the contrary—the telco's latest missive to the Commission pretty much portrays traffic pumping, or "access stimulation," as it's more politely called, as a gift to online dirty talk, for whose proliferation the agency bears at least partial responsibility.

Born to pump

Here's how traffic pumping works. Suppose you are a small, obscure Competitive Local Exchange Carrier [CLEC; pronounced "SEE-LECK"] out in Nextonowhere, South Dakota. You're performing a wonderful service—providing that last-mile voice connection for, well, not a whole lot of people. Still, somebody's got to do it. To make your business at least somewhat sustainable, the government set up a bunch of regulations called intercarrier compensation rules. They're complicated, but the bottom line is that every time your nearest Interexchange Carrier (IXC)—often a big telco like AT&T, Verizon, or Qwest—transmits a call to one of your patrons from the Big City, you get an access fee. This helps to subsidize your operation.

But you're not satisfied with the saintly moral rewards that come with your chosen profession. Then one day a voice conference service contacts you. "Say," the company suggests, "why don't you let us set up a whole bunch of chat and conference lines in your area. You'll get tons of intercarrier comp fees. Just share some of the revenue with us."

This sort of fall from grace happens more often that one might think, it seems. Last year AT&T cited a cabal of smaller carriers in rural Utah who billed over 200 million minutes of intercomp traffic to the telco. "That these [competitive carriers] were created for the express purpose of engaging in traffic pumping is underscored by the fact that traffic pumping appears to be their only business," the company noted. In fact, since their creation, nobody has ever actually made a phone call from the service areas of two of these companies, AT&T charged.

Sick puppies

In AT&T's latest filing with the FCC, the telco notes the existence of various enterprises that it thinks illustrate the ease with which this activity persists. There's TRX Telecom, for example, "the phone company that pays you." The outfit provides "hosted voice applications and pay you per minute each time someone calls them." The numbers are of the standard geographic variety, not 1-800s. "We provide this service in the hopes of encouraging new services and innovations, effectively removing the cost obstacles and providing an immediate revenue stream for ideas that may otherwise not ever see the light of day," TRX adds.

Or, as AT&T suggests, you can contact uncensoredpartylines.com and set up your own operation. At present, the service features the "Sick Puppies" line ("Come take a walk on the wild side with the Amazing Sexy Aimee. The chat is light, and mostly sexy") and the "Chocolate City" line ("an erotic party line for people who love chocolate"). You get the idea.

Apparently some pumpers even offer phone access to international radio stations, AT&T complains—although we're not clear why this is such a sin. In any event, what really rubs AT&T raw about this business is that the company griped about the light treatment the FCC gave rural competitive carriers on this issue nine years ago. The agency created a "rural exemption" from some access rate cap rules in 2001, "recognizing that a higher level of access charges is justified for certain CLECs serving truly rural areas." When telcos objected to this, the FCC declared itself "unpersuaded by AT&T’s argument that a rural exemption will cause a proliferation of chat line providers in the territories served by rural CLECs."

And so here we are now, AT&T protests, with the "pumpers" terminating as many as five times as many minutes as the biggest incumbent carriers in Iowa, Minnesota, and South Dakota. And it's your fault FCC—not that we're bitter (sniff). But the agency should "revisit the assumptions of the CLEC Access charge order" ASAP.

Pumper pushback

But as we've reported, there are plenty of smaller carriers who defend traffic pumping. "Indeed, discovering new ways of generating increased telecom traffic is what telecom carriers do, and what they have always done," wrote five in response to filings by AT&T, Verizon, and Qwest on this issue. "We are unaware of any finding by this Commission, or any regulatory commission, that telecom carriers are generating 'too much' traffic."

And more recently, former FCC Chief Economist Alan Pierce and University of Miami finance professor W. Brian Barrett submitted a study to the Commission that strongly took exception to AT&T's claims and portrayal of the practice. The report argues that lots of these CLECs are engaged in perfectly sound business operations, providing useful conference call services to consumers at reasonable rates.

"Rather than having a legitimate basis for concerns about access costs associated with free calling services, IXCs are, in fact, seeking to eliminate competition for their own conference calling services," the study concludes, "many of which have been forced to reduce prices in order to remain competitive with the relatively new, and innovative services offered by emerging competitors."

This issue has become particularly hot for CLECs, because in some instances the big telcos have resorted to what is called a "self-help" remedy to the perceived problem: simply refusing to pay the access fees at all. The FCC has warned them not to do this, but it's also released a Notice of Proposed Rulemaking that tentatively concluded that a carrier that "shares revenue, or provides other compensation to an end user customer, or directly provides the stimulating activity, and bundles those costs with access" was violating the Commission's rules.

But while AT&T paints the conferencing and chatting services that some CLECs provide as sleazy schemes, Pierce and Barrett argue that they're crucial to rural providers. In fact, they warn, as the big carriers "are abandoning and selling off their rural service areas, rural CLECs must have other profit centers in order to be able to provide more technologically-advanced services to their traditional customers, and to be able to create and maintain economic and employment opportunities in these underserved areas. Free conference services offer the rural CLECs this important diversification opportunity."

This debate will only become more urgent as either Congress or the FCC require all recipients of Universal Service Fund carrier subsidy money to provide broadband to rural/low income area consumers by a specific deadline. Here's another complex issue that the citizens of telecom-land couldn't see more differently—depending on the economic cards which they have been dealt so far.

Matthew Lasar
Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz. Emailmatthew.lasar@arstechnica.com//Twitter@matthewlasar

32 Reader Comments

I'm going to side with ATT on this one. If there are no outbound calls from the service area, then the public interest is not being served by the CLEC. However, this should be a case by case issue - if there are residents who are being served and this provides a subsidy that renders coverage available/affordable, then it should be an option.

But, as presented, if ATT's claims of no outbound (and thus no residents) is true, then I would see these guys as no different than crammers.

If this is such a problem for the encumbants they can always start doing busines in these places themselves. I have no sympathy for them just because someone else figured out a new revenue model. How dare they cheat them at their own game! </sarcasm>

Indeed, discovering new ways of generating increased telecom traffic is what telecom carriers do, and what they have always done, ... rural CLECs must have other profit centers in order to be able to provide more technologically-advanced services to their traditional customers

These arguments would be completely valid if you weren't abusing subsidies to do so. There is nothing wrong with finding new ways to generate profit, there is something wrong with forcing AT&T to pay you to do something that they get no benefit from whatsoever.

I'm not sure what the best solution is. I'm not opposed to the idea of subsidizing rural carriers at a national level. I don't think that comparing incoming to outgoing calls is a solution, as it would just encourage the co-location of telemarketers and chat-lines. I would think that the best thing to do would be to have a more intellegent price function than linear with the number of calls. As the number of customers increase in an area the infrastructure costs per customer goes down. So the cost of infrastructure might be something like A*log(C), where A is the area served, and C is the number of customers - I'm sure that the FCC could work with AT&T and the CLECs to create a good model for this. So have the subsidies follow that model where the area is certified by the FCC, and the number of calls is used as a proxy for the number of customers, or use the number of customers and grant a yearly subsidy directly from the government.

Direct government subsidies are more appealing to me than forcing AT&T to subsidize them, just out of the principle of the matter, but I have to admit that there are advantages to doing it the current way. It is likely more efficient as AT&T knows firsthand what calls are being placed, decreasing the amount of paperwork and oversight that would need to exist if a third-party (ie government) was processing the claims. It also means that there is someone (AT&T) who has a strong motive to catch waste fraud and abuse of the system. I question whether this story would exist at all if the payouts were being done by the government.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

AT&T should not be forced to bite the bullet for other peoples schemes too, they should just figure out the areas that are doing this to them and blacklist them as other tel cos have done

It's not that I completely doubt them or don't believe what they say but.... you have to consider the source of this. at&t doesn't exactly have a great track record for being completely honest and open about things.

I get a sort of "Bandwidth Apocalypse" type of vibe from this and it's been pretty much proven without a doubt that those claims are without merit.

If these are landlines, they could change the access fee schedule. First $x of calls to a physical address get the normal (or even higher than normal) access fees, then they phase out at some predetermined rate after that. Your typical household probably isn't making $500 in calls per month, and if there are people making much larger volumes, then that undermines the justification for the fees in the first place. AT&T and its ilk have plenty of incentive to police the fee schedule too, so it wouldn't require a whole lot of additional effort from the government.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

AT&T should not be forced to bite the bullet for other peoples schemes too, they should just figure out the areas that are doing this to them and blacklist them as other tel cos have done

Not a flame but just a point, some don't have a choice where they can do work or live. If your a farmer out in the middle of a billion acres of other farms your area of living is not going to be profitable for any company to come in and build info-structure. You can't just move your farm and change your crops (well I suppose that you could but this isn't practical for what I would guess 99% of said imaginary farmers). So consider those people, remember they put food on your table, and provide raw materials for everything you use. It helps them stay competivie and it IMO the least we can do for these people.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

While it is true that some (most?) people choose to live in a rural setting rather than live in a city, the fact is that not everyone can live in a city -- there simply isn't enough housing.

And don't forget that the subsidizing goes both ways -- I live in the western most area of New York state (hundreds of miles from New York city), and a high percentage of the taxes I pay go toward subsidizing infrastructure and other things in the city of New York which I will never use.

Are the pumpers actually terminating the calls in the CLEC region or are they being backhauled back out of the area? If they are actually being terminated in these rural districts then the policy is probably serving a social good of spurring economic development in mostly poor rural areas, if they are just being used to transport the calls then it's mostly just abuse of the rate structure and should probably be curtailed.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

because the alternative involves letting large chunks of the country devolve to Deliverance-looking redneck hell when the telcos refuse to run a line anywhere unless the customer pays thousands of dollars up front (like the cable companies already do)

I wonder if the FCC is basically telling AT&T: Look we gave you a mandate to service rural areas in exchange for big government subsidies. You said you were tired of servicing rural folks and wanted these little guys to do it. You shouldn't come crying to us when your greed and shortsightedness comes back to bite you in the ass.

That said, this does sound like outright fee abuse. Is it not possible for AT&T to figure out which numbers are actual households and which are just backhaul endpoints and only pay the fee for calls that go to people's homes?

An even simpler solution might just be a flat fee based on the number of customers and size/geography of the land covered? I'm sure these CLECs will want to over inflate their customer figures, but that should be handled easily enough as out and out fraud.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

AT&T should not be forced to bite the bullet for other peoples schemes too, they should just figure out the areas that are doing this to them and blacklist them as other tel cos have done

Because you live in a country that believes that everyone should have access to basic services regardless of where they live? How about if the police don't bother coming to your section of town anymore because you choose to live in a high crime area and the city doesn't want to subsidize your choice? Or the city decides not to replace the leaky water mains in your neighbourhood because the tax base is low and it isn't worth it to serve your area?

I agree with the large telcos that "traffic pumping" is wrong, and that they shouldn't have to pay for it (meaning their customers pay for it). Where they lose my support is when they demand that companies who provide limited phone services, such as Google, should be forced to share this burden. Expanding the problem to more shoulders does not solve the problem, the solution should be to reduce traffic pumping behavior by changing the subsidy sturcture itself.

And saying we ought not subsidize rural areas at all is wrong heade. As others have pointed out, we need to support those who grow crops, and gather other resources. Additionally, simply because one lives in rural area does not mean you shouldn't have access to the larger national community, who knows where the next genius idea will come from? It would be foolish to reduce our access levels to one another.

The best thing AT&T can do is to set up shops in those areas itself. This way, it will be the one to charge others access fees.

If those traffic pumpers are generating hundreds of millions of dollars in fees, then AT&T can save itself huge bucks or even gain huge bucks by setting up shop in those areas. This way, it is the one to connect people from those areas to the rest of the world.

Those local phone companies would connect to AT&T and they won't get to charge AT&T an access fee.

Thus, AT&T should look at this as simply a business and see if it is worthwhile to set up shop in those areas. AT&T can even do this through the internet by setting up data lines and tunneling the voice service through the internet. Thus AT&T can save itself huge bucks this way or even make big bucks at the expense of other national providers.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

AT&T should not be forced to bite the bullet for other peoples schemes too, they should just figure out the areas that are doing this to them and blacklist them as other tel cos have done

ATT could solve the problem more-or-less immediately by:1. buying the CLECs in question. Except those CLECs exist because ATT (or some other large CLEC) doesn't want to, because it's expensive.2. set up competitive service there. Except those CLECs exist because ATT (or some other large CLEC) doesn't want to, because it's expensive.

If ATT (or whomever) is paying out less than the cost of having competing telephone providers in those areas, it seems like society is getting a good deal: universal service plus economic stimulation for rural areas at a lower cost than having a 'real' competitive telecom market.

The best thing AT&T can do is to set up shops in those areas itself. This way, it will be the one to charge others access fees.

I'm pretty sure the giant telcos have no interest in rural areas, seeing how Verizon is in the process of unloading most of its rural operations to the utterly terrible Frontier in exchange for massive tax breaks

Quote:

Verizon is abandoning rural America and leaving a broad swath of destruction in its wake. Verizon sold its telephone lines in Hawaii. The result: consumers received terrible service quality and Hawaiian Telecom went bankrupt. Verizon sold its lines in Maine, New Hampshire and Vermont to tiny FairPoint. The result: terrible service quality and FairPoint is nearly bankrupt. Verizon spun off Idearc - its Yellow Pages operation. The result: bankruptcy. The August 11th Wall Street Journal stated "In all, these companies have lost upward of $13 billion in value and counting." The Journal continued "...[Verizon's CEO] extracted prices that literally sucked the life out of the buyers."

Verizon structured each of these deals to take advantage of an obscure tax loophole called the Reverse Morris Trust. By spinning off these operations to much smaller companies, Verizon can walk away with billions of dollars tax free. But to do this, Verizon abandoned millions of customers, and left them at the mercy of companies that have been snowed under by debt and unable to sustain profitable operations. Consumers, workers and the purchasing companies have suffered.

Now, Verizon is at it again - expanding the pain it will inflict to 14 additional states. Verizon has proposed the sale of 4.8 million access lines in 14 states to a much smaller company, Frontier for $8.6 billion. This includes more than $3 billion in new debt to be taken on by Frontier. Verizon chose a much smaller company so that it could obtain this $3 billion tax free! In effect, we are all subsidizing Verizon's abandonment of rural America.

I will likely get flame sprayed for voicing my opinion, but why are we even subsidizing rural areas anymore, people clearly chose to live there, the government should not be throwing entitlements (because that is what rural subsidization is) at them.

AT&T should not be forced to bite the bullet for other peoples schemes too, they should just figure out the areas that are doing this to them and blacklist them as other tel cos have done

Frankly, any city with less than 50 million people should be shut down. Only the big are valuable, right? Small cities are a waste of energy, time, and resources. Only New York should have sewer, water, power, roads, or any other sort of infrastructure. But why should New Yorkers subsidize those deadbeats in other cities, it's not like they can't move to New York? Fuck'em, they can pay double taxes.

And all that farm land is doing nobody one ounce of good in New York. Pave it all. Or just nuke it. It's not like your kids are likely to go there. Not if they live in New York, which is clean because it has power, water, and sewers! Dirt is dirty. That's why its called dirt. Nobody wants dirt on them, not if you live in New York anyway.

Fuck the other deadbeats and their never ending need for hand holding.

Plus, maybe even Verizon can compete with broadband if 99% of the US population is forced into the New York city area. Think of it, and how gloriously efficient that would be! Hell, someday they might even beat Japan for broadband.

While I understand AT&T's complaint, the hypocrisy and karma payback here is making me side with the rural carriers.

Way back when TA 1996 was passed all the LECs were lobbying hard to put fee structures much like this in place. They asked for, paid for, and got "reciprocal compensation" which meant that calls *from* CLECs to the ILECs would cost the CLECs $X per call/minute to terminate. Calls from the ILEC to the CLEC would also incur a similar fee of $X per call/minute.

Why did they want this so bad?

At the time, they believed that the CLECs would mostly be "cherry picking" business customers and that since the CLECs were small and they were big, more calls would be going from CLEC->ILEC and that overall they would clean up big time on this. Hopefully if the fees were high enough, they could even put some CLECs out of business (pesky competition).

What they did not count on was the internet and dialup modem service. I don't know which CLEC started the ball rolling, but the idea spread like wildfire. CLECs started offering PRI and channelized T1 lines at rock-bottom prices to ISPs. Many also opened up co-location facilities in their own COs to cut the costs for the ISP even further. This totally screwed up the ratio that the ILECs had counted on - all of a sudden the ILECs were paying the CLECs a ton of money in recip comp fees. Many also cut deals with the ISPs to share in the fees or offered free PRIs. Conference calling companies and "chat lines" were also big customers.

The best thing AT&T can do is to set up shops in those areas itself. This way, it will be the one to charge others access fees.

I'm pretty sure the giant telcos have no interest in rural areas, seeing how Verizon is in the process of unloading most of its rural operations to the utterly terrible Frontier in exchange for massive tax breaks

Quote:

Verizon is abandoning rural America and leaving a broad swath of destruction in its wake. Verizon sold its telephone lines in Hawaii. The result: consumers received terrible service quality and Hawaiian Telecom went bankrupt. Verizon sold its lines in Maine, New Hampshire and Vermont to tiny FairPoint. The result: terrible service quality and FairPoint is nearly bankrupt. Verizon spun off Idearc - its Yellow Pages operation. The result: bankruptcy. The August 11th Wall Street Journal stated "In all, these companies have lost upward of $13 billion in value and counting." The Journal continued "...[Verizon's CEO] extracted prices that literally sucked the life out of the buyers."

Verizon structured each of these deals to take advantage of an obscure tax loophole called the Reverse Morris Trust. By spinning off these operations to much smaller companies, Verizon can walk away with billions of dollars tax free. But to do this, Verizon abandoned millions of customers, and left them at the mercy of companies that have been snowed under by debt and unable to sustain profitable operations. Consumers, workers and the purchasing companies have suffered.

Now, Verizon is at it again - expanding the pain it will inflict to 14 additional states. Verizon has proposed the sale of 4.8 million access lines in 14 states to a much smaller company, Frontier for $8.6 billion. This includes more than $3 billion in new debt to be taken on by Frontier. Verizon chose a much smaller company so that it could obtain this $3 billion tax free! In effect, we are all subsidizing Verizon's abandonment of rural America.

Very few CLECs have retail, land-line customers anymore outside of the very rural areas. The LECs make it impossible to make any money, as they nickel and dime on everything. The only customer base available is the people that the LECs have already shut-off. The customer turn-over rate in Dallas for a CLEC is 30% a month. Even in OK, the Native Americans with the $1 a month after subsidy manage to turn over every 9 months.

The vast majority of CLECs these days are setup for these traffic pumping schemes, or others. You don't need 30 CLECs in one Iowa city to serve the population base. It is for these schemes. The current tariff scheme serves no good purpose. They should cap wholesale at a penny a minute for tiers 1-3 (ATT, Verizon, Wireless), and then 2 cents at the rural areas. Then everybody can get back to making useful apps, that you can build a real business around.

I'm with AT&T on this one. Eventually that cost will be passed along to the average person in some form or other, and that raises cost for everyone.

The only way to not pass some cost or other along to the average person is to accept that people in rural areas won't get phone service. There are reasons why this is not a good idea, but I understand why selfish people object to subsidizing folks in rural areas.

OTOH, as I posted above, if the costs of subsidizing service in this way are still lower than the costs of having competitive telecom companies in these areas, then we're ahead of the game already. The real trick here isn't that someone's gaming the system. No matter what system we design, someone will always game it. The trick is to figure out if the trouble and expense of 'fixing' this system is worth going to. As a practical matter, we might just be better off letting well enough alone (unless you're in the 'fsck the rural people' crowd, at which point it's self-evidence that we should kill the subsidy and stop forcing anyone at all to provide them with phone or electric power).